Kotak raises $1 billion for Special Situations Fund


Kotak Special Situations Fund, which aims to invest in distressed assets, has reached its final close with total commitments of $1 billion from investors, a top executive said.

The fund, launched in February 2019, is anchored by a $500 million commitment from sovereign wealth fund Abu Dhabi Investment Authority (ADIA). The fund will be managed by Kotak Investment Advisors Ltd.

Other investors are sovereign wealth funds and one very large family foundation based out of India, said Srini Sriniwasan, managing director and chief executive officer of Kotak Investment Advisors Ltd. Adding to that, he said, the capital could be deployed at any point over the next four years while the fund life will be about ten years.

“This is a sector-agnostic fund that addresses the stressed assets problem in the country. Right now, the stressed asset opportunity can be divided into two parts—one is for those assets that are going through the NCLT (National Company Law Tribunal) process and the others are those companies, which under the new RBI’s (Reserve Bank of India) dispensation, allow for a potential one-time settlement with their lenders to avoid the NCLT process. We are happy to finance both these opportunities,” said Sriniwasan.

“The average ticket size could be anywhere between ₹350-700 crore for a single investment as we don’t want to have a very high concentration of a single stressed asset. But in terms of our actual ability to do a transaction, we can do much larger deals of more than ₹1,200-1,500 crore each, because our investors have given us capital with the expectation that we will be able to show them additional co-investment opportunities so they can put more capital to work. In that sense, we would be interested in any transaction that is between ₹350-1,500 crore,” he added.

With the final close of its special situations fund, Kotak joins other investors that have been tapping the distressed debt opportunity in India, which has the world’s worst non-performing loan ratio.

The country’s banking system saw its bad loans peak at 11.5% in March 2018 and then decline to 9.3% in March this year.

The Reserve Bank of India expects gross non-performing assets to decline further to 9% by March next year, as capital infusions from the government help public sector banks, while private sector banks tap markets to raise capital.

“The Kotak Special Situations Fund has been closed at an opportune time for us. We have a flexible investment mandate enabling us to provide much-needed capital to address the short-term financial dislocation in the market as well as long-term capital to address the NPL (non-performing loan) issue,” said Sriniwasan.

Kotak Investment Advisors is a wholly-owned subsidiary of Kotak Mahindra Bank Ltd and was set up in 2005 with its first private equity fund.

So far, the alternate assets business has raised $3.8 billion across different asset classes including private equity funds, real estate funds, infrastructure funds, the special situations credit fund and listed equities.